(The stories that telemarketers tell to sell over-priced coins)
Many gold and silver telemarketers foster the circulation of myths, misunderstandings, and outright lies about the purchase and sale of gold and silver. Generally, their stories take two premises. First, that the government may again call in gold as it did in 1933. Second, that the coins that they have for sale hold greater upside potential than bullion coins.
By cultivating fears and expectation of greater price increases, unscrupulous firms can sell high-priced (and nearly always overpriced) coins with greater margins of profit. Investors who believe these stories invariably pay too much or buy the wrong coins. After reading this expose, no investor need be taken advantage of.
The most frequently used technique to promote high-priced coins is to raise the issue of confiscation. Many telemarketers tell investors that old U.S. gold coins and old European gold coins are not “subject to confiscation,” leaving the impression that modern gold bullion coins are. Consequently, many investors buy old U.S. gold coins at prices significantly higher than the value of their gold content. The idea of buying “non-confiscateable” gold sounds like a powerful argument but wilts under scrutiny.
Many precious metals firms maintain that old U.S. gold coins, proof sets, and commemorative gold coins are “collectibles” and would not be subject to another gold recall. Some firms say that premiums of at least 15% automatically make coins collectibles. Another notion holds that coins one hundred years or older are antiques and therefore not subject to confiscation. One large firm that sells rare coins goes as far as to say:
Under current federal law, gold bullion can be confiscated by the federal government in times of national crisis. As collectibles, rare coins do not fall within the provisions permitting confiscation.
No federal law or Treasury department regulation supports these contentions.
The myth that specific types of gold coins are “not confiscateable” stems from the Executive Order that President Roosevelt issued in 1933 calling in gold. The Executive Order exempted “gold coins having a recognized special value to collectors of rare and unusual coins,” but it did not define special value or collector and certainly not collectibles. Nevertheless, telemarketers promoting old U.S. gold coins perpetuate this myth because it makes easier the selling of high-priced coins.
Just because Roosevelt exempted “gold coins having a recognized special value” does not mean that any future call-in would exempt collectibles. Roosevelt’s Executive Order would have no legal binding on another gold call-in. Besides, on December 31, 1974, with Executive Order 11825, President Gerald Ford repealed the Executive Order that Roosevelt used to call in gold in 1933. This was necessary because on the same day Congress restored Americans’ right to own gold. Furthermore, in 1977 Congress removed the president’s authority to regulate gold transactions during a period of national emergency other than war.
Even if a law did exempt certain coins from future confiscation, the government could change that law. Sadly, the government often simply ignores laws. Dealers who sell so-called “non-confiscateable” gold have no basis for making such claims.
For further discussion of this matter, assume there were another gold call-in. Would old U.S. gold coins, which make up the bulk of the “non-confiscateable” market, be exempted? Probably not because they are common coins. (The old U.S. gold coins most often promoted are the $20 Libertys and the $20 St. Gaudens, also known as Double Eagles. A $10 coin is called an Eagle, a $5 coin a Half Eagle, and a $2-1/2 coin a Quarter Eagle.)
Although Roosevelt’s Executive Order required Americans to turn in their gold coins and gold bullion, foreigners continued to redeem paper dollars for gold until August 15, 1971, when President Nixon closed the gold window. From the end of World War II to 1971, our gold reserves were cut in half.
It is generally believed that all the gold coins surrendered under Roosevelt’s call-in were melted or refined into .999 fine bullion bars. That was not the case. It was to the government’s advantage to give the foreigners gold coins instead of bullion bars.
With the official price of gold at $35 an ounce, a foreign bank presenting $35 million paper dollars received 1,000,000 ounces if the Treasury delivered gold bullion. However, when the Treasury delivered gold coins with a face value of $35 million, it delivered only 967,500 ounces, saving 32,500 ounces.
Each $20 Liberty and St. Gaudens (Double Eagles) contains .9675 ounce of gold. The smaller coins contain the same proportions. Therefore, it was to the Treasury Department’s advantage to give out U.S. gold coins instead of bullion bars. Additionally, before Roosevelt’s call-in, millions of old U.S. gold coins already had made their way to Europe.
So, in view of the government’s policy of delivering “confiscated” gold coins to foreign governments, how can a promoter of old U.S. gold coins claim to be selling “non-confiscateable” gold when the coins he delivers may have been called in back in 1933?
Promoters of old U.S. gold coins rarely reveal the sources of their coins. They foster the idea that the coins they sell somehow survived the 1933 call-in. Probably, the coins being promoted just arrived from Europe a few weeks earlier. Several large numismatic wholesale firms have offices in Europe for finding hoards of old U.S. coins. One firm advertises “Shipments coming in from Europe daily.” Another firm boasts offices in Brussels, Paris, and Zurich.
As noted above, the premise of “non-confiscateable” gold lies in Roosevelt’s Executive Order that exempted “gold coins having recognized special value to collectors of rare and unusual coins.” Are old U.S. gold coins “rare and unusual” today? No, they are not. Hundreds of thousands have have been graded and slabbed by PCGS and NGC, the two dominant coin grading services.
Between 1850 and 1907, U.S. mints turned out over 100 million $20 Libertys. Between 1908 and 1933, they coined some 65 million $20 St. Gaudens. Today, no one knows how many have survived, but the number is undoubtedly in the tens of millions, with the bulk of them residing in European bank vaults.
Because of all the old U.S. gold coins in Europe and because of the huge premiums they carry, old U.S. coins are dangerous investments. As gold moves higher, European banks may become sellers, causing old U.S. gold coins to fall in price while gold goes up.
Or, the European banks may decide to increase their gold holdings by selling their high-premium old U.S. coins and using the proceeds to buy bullion. Such a move, of course, would put downward pressure on the prices of old U.S. gold coins. For a further discussion about why old U.S. gold coins are overpriced, visit our page on Old U.S. Gold Coins.)
Since 1989, PCGS and NGC, the two major grading services, have “slabbed” millions of coins rated MS-60 or higher. Now, the two services are grading 200,000 to 300,000 coins a month. Millions of lower-grade coins (VF through BU) do not even warrant being submitted. Yet, they are sold as “non-confiscateable” semi-numismatic coins. Low-grade coins that have no real collector value are called semi-numismatic. VF/XF common-date Double Eagles are definitely semi-numismatic coins.
Add in the uncounted smaller denomination old gold coins ($10 Eagles, $5 Half Eagles, etc.) and the number of available old U.S. gold coins grows even bigger. There is no way the old U.S. gold coins being promoted as “non-confiscateable” have a “recognized special value to collectors of rare and unusual coins.”
The concept of “non-confiscateable” gold is counterfeit. The idea lives only because dealers continue to push it for their own benefit. Investors who do not have the facts are unable to know otherwise. Readers of this page, however, need not be victims to the hype and promotion so prevalent in the gold coin industry.
Investors wanting to buy gold should go with the bullion coins: American Gold Eagles or Krugerrands. These coins move dollar for dollar with the world price of gold and are easy to buy, sell, and trade. Additionally, tracking the value of these coins is easy. No “expert” has to look at them, as is the case with St. Gaudens and $20 Libertys.
However, there are times when raw old US gold coins sell at bullion coin prices. That was the case for a couple of years in the 1990s. And, it was true again in 2017. Be sure to ask a CMI broker where the premiums are on old US gold coins before buying any coins. At times, old US gold coins are excellent buys.
Higher profit potential
Telemarketers are quick to assert that old US gold coins (or whatever they’re promoting that day) have greater upside potential, citing several factors.
Old US gold coins, they say, are collectibles and have always produced greater gains in bull markets. This have been true in some case, but it absolutely is not true when you pay a 20% to 30% premium over what the telemarketer paid.
Decades ago, there was a widely distributed study that showed how old US gold coins produced greater profits in the 1970s precious metals run-up. However, some honest dealers dissected the report and revealed that the coins used in the study had been “hand picked.” Still, that study is cited by telemarketers promoting so-called collectible coins.
Old European Gold Coins
Telemarketers often assert that European bullion gold coins dated before 1933 would be, as telemarketers claim about old U.S. gold coins, legally beyond the reach of the government in another gold call-in.The imported coins most commonly promoted as non-confiscateable include:
- French Twenty Francs (both the Roosters and the Angels);
- British Sovereigns (usually with the images of Queen Victoria or Edward II or George V);
- Swiss Twenty Francs (also called Helvetias);
- Belgium Twenty Francs (a.k.a. King Leopolds);
- Swedish and Danish 10 Kroners (Mermaids);
- Swedish and Danish 20 Kroners;
- Dutch 10 Guilders.
The arguments put forth by telemarketers have no merit. If the government again moves against gold, no coins will be safe, except for those that are genuinely numismatic, coins that are truly one of a kind. Tubes of European coins sold at 30% markups over the gold content would be subject to confiscation.
Telemarketers have been very successful at selling old European coins. So successful that our Gold Specials Page nearly always has some for sale. Not at 20% and 30% premiums but at bullion coin prices. After all, the European coins promoted by telemarketers really are bullion coins.
We have them for sale because rarely do telemarketers honor their buy “buy back” promises. Consequently, we buy a lot of old European coins and put them on our Gold Specials Page.
Promoted European coins are not worth the high prices promoters ask. Regardless of the dates on them, they are not “non-confiscateable.” Additionally, they hold little, if any, numismatic potential. It is a peculiarity of coin collecting that coins are prized by numismatists (coin collectors) only in their countries of origin. Americans collect U.S. coins; the British collect coins of Great Britain; the Japanese collect Japanese coins, etc.
Furthermore, the European coins are often compared with old U.S. gold coins, which can and do achieve premiums at times (See Old U.S. Gold Coins). European coins, as a rule, are simply bullion coins and are hardly ever likely to attain genuine numismatic premiums. Some of the coins have been around for a hundred years and have always sold at only a few dollars above the value of their gold content. That is why telemarketers promote them. They buy the European coins near bullion prices and mark them up, ensuring big profits for themselves
Finally, there is another feature peculiar to European coins: they contain unconventional amounts of gold, such as .1867 oz, or .2354 oz, or .1947 oz. Americans generally prefer full ounce coins, or fractions of ounces they easily understand, such as 1/2-oz, 1/4-oz, or 1/10-oz. However, when old European coins are available at markups comparable to 1-oz Gold Eagles, they are good buys.
Often, promoters will claim that the coins they offer are not subject to “reporting.” Such statements imply the government requires gold transactions be reported. However, no government regulations require the reporting of the purchases of any precious metals, per se. If payment is made by cash greater than $10,000, however, it becomes a “cash reporting transaction.” It is not the gold that the government wants reported but the cash. Such reporting applies to all business transactions involving more than $10,000 cash.
Regarding cash transactions, Official General Instructions for IRS Form 8300 read: “Who Must File. – Each person engaged in a trade or business who, during that trade or business, receives more than $10,000 in cash in one transaction or two or more related transactions must file Form 8300. Any transactions conducted between a payer (or its agent) and the recipient in a 24-hour period are related transactions.”
This regulation applies to cash – greenbacks, paper money. It does not apply to personal checks, wire transfers, or money market withdrawals. When cashier’s checks or money orders are involved, cash reporting may be triggered.
Form 8300’s General Instructions define as cash “a cashier’s check, bank draft, traveler’s check, or money order having a face amount of not more than $10,000.” Using a cashier’s check less than $10,000 would be a “cash transaction,” but it would not be reportable because it is less than $10,000. However, two cashier’s checks, each less than $10,000 but totaling more than $10,000 for a single purchase, would be considered cash and subject to reporting.
Further clarification: If an investor makes a $15,000 investment in gold and pays with a single $15,000 cashier’s check, it is not reportable. If, however, he pays with two or more cashier’s checks each less than $10,000, the dealer would be obligated to report.
Cash reporting requirements were not written specifically for the precious metals industry but for all businesses. The purchase of a car, boat, or jewelry, and payment with two cashier’s checks, each less than $10,000 but totaling more than $10,000, would be a reportable transaction.
Another example: an investor agrees to buy precious metals totaling more than $10,000, again say $15,000, and wants to make payments with money from two accounts. If the investor withdraws $8,000 from the first account and gets a cashier’s check, and then gets another cashier’s check for $7,000 from the second account, the transaction becomes reportable. A purchase of $30,000 and payment with two $15,000 cashier’s checks would not be a reportable transaction. The significant amount is $10,000.
Personal checks drawn on the payer’s own account are not considered cash. Form 8300’s General Instructions read: “Cash does not include a check drawn on the payer’s own account, such as a personal check, regardless of the amount. ”
Form 8300’s General Instructions say “Transactions are considered related even if they occur over a period of more than twenty-four hours if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions.” For example, if an investor agrees to buy $20,000 in gold but makes installment payments with cash in amounts less than $10,000, the purchase would be reportable.
It is often erroneously thought that banks report to the government all personal checks more than $10,000. Banks do not. But, a cash transaction exceeding $10,000 requires a bank to fill out and file a Cash Transaction Report (CTR). A cash deposit more than $10,000 to any bank or other financial institution account by an individual possibly would be reported.
However, purchases of cashier’s checks with cash for amounts $3,000 to $10,000 require banks to complete Monetary Instrument Reports (MIRs). (Some banks call them Monetary Instrument Logs.) MIRs are not filed with the government but are records that enable banks to help comply with cash reporting requirements. It is not clear when a MIR requires the completion and filing of a CTR, but an individual regularly purchasing cashier’s checks between $3,000 and $10,000 would probably be reported.
If a business reports a cash transaction, the customer will know it. Form 8300 requires name, address, citizenship, and social security number. It also asks for method of identification, driver’s license, passport, etc. Additionally, Form 8300’s General Instructions call for anyone filing a Form 8300 to “provide a written statement to each person named in a required Form 8300 on or before January 31 of the year following the calendar year in which the cash is received.”
Finally, Form 8300 General Instructions has a box to be marked if the transactions appear “suspicious.” The box can be marked for transactions less than $10,000 if the recipient believes the purchaser is trying to avoid cash reporting.
No one wants any red flags at the IRS. Unscrupulous dealers know this and use it to avert clear thinking; they use the threat of “reporting” to raise investor fear. This enables them to sell overpriced coins. Investors justify higher prices by thinking they are getting “non-reportable gold.” No investor need be taken advantage of this way.
Customer sales to dealers of certain precious metals exceeding specific quantities call for reporting to the IRS on 1099B forms. The 1099B forms are similar to other 1099 forms taxpayers commonly receive; the “B” means they have been issued by a business other than a financial entity.
Reportable sales (again, customer sales to dealers) apply to 1-oz Gold Maple Leafs, 1-oz Krugerrands, and 1-oz Mexican Onzas in quantities of twenty-five or more in one transaction. Reporting requirements do not apply to American Gold Eagles, no matter the quantities. Furthermore, reporting requirements do not apply to any fractional ounce gold coins.
Only one common silver product is reportable when sold: pre-1965 U.S. coins. The quantity that causes the filing of a 1099B, however, is not clear. The IRS bases its authority to require reporting on CFTC-approved contracts that call for the delivery of $10,000 face value. Consequently, many dealers do not report sales of pre-1965 U.S. coins unless the sale totals $10,000 face value; others report $1,000 sales.
Sales of American Silver Eagles, privately-minted 1-oz silver rounds, and 100-oz silver bars are not reportable, no matter the quantity. Other precious metals products are reportable, but they are not covered here because the average investor does not trade them.
Most investors have no first-hand knowledge of these matters; consequently, when precious metals dealers talk about cash reporting, 8300 forms, or 1099s, investors are unable to know that they may not be hearing the whole story. Wanting to avoid the government knowing about their precious metals investments, many investors are delighted to learn that their purchases will not be reported and end up buying overpriced coins.
As explained under “Reportable Purchases,” no precious metals purchases are reported unless cash reporting thresholds are exceeded. Investors wanting to avoid reportable sales should buy American Eagles.
The above discussions about cash reporting, IRS Form 8300, and bank reporting are for editorial purposes only and should not be relied on as definitive and final. Persons involved in cash transactions should consult their attorney or accountant.